A Bleg for Reconciliation!

It is dangerous always to associate the easing or the tightening of monetary policy with a fall or a rise in short-term nominal interest rates.

This is Christina Romer, chair of the Council of Economic Advisers, April 17th:

The recent recession was obviously not caused by tight monetary policy. Interest rates were not especially high when it began, and so the Federal Reserve had only limited room to cut them. It has brought short-term rates down to virtually zero, but it cannot push them below that. The result is that we have not had the strong monetary stimulus that we would normally have in these economic circumstances.

And I thought that Kevin Drum had slapped Scott Sumner in the face. This reminds me of Robin Hood: Men in Tights, when Robin returns the Sheriff’s slap from a linen glove with a slap from a steel gauntlet…which was pretty funny when I watched it at 12 years old.

Anyone have any theories to reconcile this schism between textbook economics and economic literature? Conditioning is the easy answer…but there has to be something more.